Co-ops Make Markets Work Better

Murray Fulton, director, Centre for the Study of Co-operatives

The Role of Co-operatives in the Economy
Murray Fulton

In a StarPhoenix/Leader Post op-ed piece published on 7 December 2016, Brett Fairbairn, Dionne Pohler, and I outlined why a mix of business types is required for a well-functioning market. As we said,

Achieving the correct balance of different types of business forms is critical.… Just as biological environments benefit from a rich mix of different organisms, so, too, do markets benefit from a diversity of business types. Consumer interests and a desire for local control can be met with co-operatives; niche markets can be served by entrepreneurs; and employment opportunities can be generated through employee ownership. Established chains have a role to play, given their brand identification and experience.

While we were commenting specifically on the privatization of liquor stores in Saskatchewan, the argument is a general one and applies to all markets in the economy. It is particularly relevant for co-operatives and credit unions.

Credit unions and co-operatives play a special role in the economy because the members both own the business and use the services it provides (see the video The World’s Simplest Co-op for more details). As a result, members are in a unique position to ensure the services being provided meet their needs. In fact, co-operatives and credit unions are often formed to provide more competitive prices, a higher quality product, or a good or service that other businesses are not providing. The grain co-operatives formed a century ago in the United States and Canada fall into the first category (see a video on the Canadian agrarian movement and co-ops here); REI (Recreational Equipment, Inc.) and (MEC) Mountain Equipment Co-op fall into the second; and many of the credit unions, some of which were formed in the 1930s, fall into the third (view a brief video on credit unions here).

Co-operatives formed today also meet unmet needs, whether it is the desire by workers to manage the business in which they work, the need of a rural municipality and a First Nation to provide better services less expensively, or the need of a group of consumers to have access to local food.

While co-operatives and credit unions have long played a role in making particular markets work better, they have not traditionally been used as a specific tool of public policy for this purpose (there are exceptions — a notable one is the creation of the rural electric co-ops as part of the New Deal in the United States in the 1930s). Yet, such an idea has real merit. Being embedded in specific markets would give co-ops access to the information required to address the challenges that characterize those markets. And, unlike government agencies, they would not be subject to lobbying by the businesses that occupy these markets, a problem governments face far too often. Using co-ops in this policy role would also be attractive to governments concerned with keeping taxes low.

Giving co-ops a more prominent role in making markets work better requires more than simply giving them the green light to operate. While co-ops can operate effectively once they are formed, they are difficult to form and will thus require assistance during the start-up phase if they are to play a useful role in improving market efficiency.

Co-operatives and credit unions have a unique policy role to play in making markets work better. They are a necessary part of every market and, as the example of the privatization of Saskatchewan liquor stores illustrates, should not be discriminated against when markets are being shaped. But more than this is necessary. Co-ops and credit unions need assistance at the development stage if they are to survive to play their role in market improvement. Future posts will examine the nature that this development assistance should take.

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